Posted in Employment Litigation Employment Policies

Walk-Backs: Learning to manage employees by watching America’s political leaders?

Managers often confront workplaces rife with a history of unenforced policies and mistakenly believe that the solution is merely to enforce those long-ignored rules.  Legally, the results of such efforts can be disastrous.

In Curry v. Menard, Inc., 270 F.3d 473 (7th Cir. 2001), a new manager tried to more strictly enforce the company’s cash loss policy.  An employee’s drawer came up short three times in two months, so he terminated her.  The appellate court found that her case warranted a jury trial: the history of lax enforcement predating the new manager, plus less-than-perfect enforcement by the new manager, constituted sufficient evidence of pretext.  The employer settled a few months later.

What could the store’s management team have done differently?  Watch more TV, especially the political news.  In a world where management decisions are now second-guessed by courts and administrative agencies, perhaps there is an object lesson in watching our elected officials and candidates running for those offices.  It doesn’t matter which side of the aisle: all follow the same playbook.

Let’s start with one gambit in the title of McCutcheon and Mark’s classic book on understanding the political game: Dog Whistles, Walk Backs, and Washington Handshakes: Decoding the Jargon, Slang, and Bluster of American Political SpeechThose in the political class never admit error or changing positions.  Instead, a candidate or an official will be “walking back” that position.

Why is this technique popular for political leaders?  Because it is better than all of the other alternatives: flip-flopper, liar, incompetent, etc.  Why is this technique mandatory for business leaders?  Because all of those prove pretext and give easy wins in court to employees.  And that is a problem that is not limited to California.

For example, the NLRB reversed a hospital’s termination of a surgical center nurse who told her supervisor she “didn’t give a ‘fu—’ any more” and engaged in sex talk and profanity around “terrified” coworkers.  Why?  Because the hospital never properly “walked-back” its years of permitting profanity, off-color jokes and bawdy behavior, before that termination.  Inova Health System, 360 NLRB No. 135 (June 30, 2014).

As every politician knows, walking-back is never easy.  Yet, all use this technique.  If in doubt, you can merely google the phrase “walk back” with the name of your most favorite or lease favorite elected official or candidate.  So how do you apply this technique in managing employees?  Here is a four-step plan to consider.

  1. Draft a short memo.  It can be short, even bullet-points.  The purpose is to make a public record of your intent to neutrally enforce policy for legitimate reasons.  You can even use the phrase “we are walking back the past under-enforcement of this policy”.
  2. Get front-line supervisor onboard.  Explain the problem to be addressed and emphasize that they must strictly enforce existing policies, regardless of how things have “worked” in the past.  Make it clear that if they don’t, they will be disciplined.  It only takes one noncompliant supervisor who permits lax enforcement to continue to create the evidence to allow courts and agencies to conclude that this disparate enforcement was a prextext for discrimination.
  3. Be bold.  Walk-backs are public events.  Redistribute and reemphasize existing policies in meetings with employees; explain the problems caused by the history of lax adherence to existing rules; emphasize that lax enforcement ends now.  Give examples of what the policy prohibits and requires.  Make the consequences clear but not unnecessarily draconian.  If you aren’t prepared to follow through on firing anyone who forgets to clock-out even once, don’t threaten it.
  4. Enforce the policy strictly as explained.  Any decisions to not apply the policy because of unique circumstances should be documented (again, bullet points are fine).  This will be critical for you to be able to prove consistency months or years later when you are being pressed in preparation for deposition, motion for summary judgment, or trial.

Admittedly, this feels weird: taking business advice from politicians?  It is, however, more image advice.  Politicians live in a world where public scrutiny is constant.  Their techniques for dealing effectively with that scrutiny have direct application in areas of business where equivalent public scrutiny is now de rigeur, like employees challenging employment decisions in court and with any number of state and federal administrative agencies.

Still dubious?  Then consider Winston Churchill’s view: “Politics is not a game.  It is an earnest business.”

Posted in Employment Policies OSHA/Workplace Safety

OSHA’s Safety “Nudge” to Employers: No Reportable Injuries Is Not Time for a Pizza Party

Think 180 days without an OSHA recordable injury is cause for celebration? Think again.

New OSHA rules are potential game-changers to the status quo on safety.  Those rules require notice must be provided to employees explaining their right to report any injury or illness without fear of retaliation for making the report.  That is easy enough but that is only the beginning.

The rules also contain a directive that employers “must not discharge or in any manner discriminate against any employee for reporting a work-related injury or illness.” 29 C.F.R §§ 1904.35(b)(iv).  Further, it requires that employers “establish a reasonable procedure for employees to report work-related injuries and illnesses promptly and accurately.”

OSHA views this seemingly innocent obligation as its authority for sweeping reviews of employer policies. This portends far more sweeping intrusions into day-to-day shop management.  Let’s consider some specifics.

Do you have rules on immediate reporting of injuries? OSHA asserts that such “rules cannot penalize workers who do not realize immediately that their injuries are serious enough to report, or even that they are injured at all” and promises to carefully scrutinize any disciplinary action against an employee who has violated an employer’s rule about the “time or manner for reporting injuries or illnesses.”

Do you have injury rate-based incentives? OSHA asserts that those are now problematic. Incentive programs based on “injury free” time periods could be considered unreasonable if the policy would deter an employee from reporting a work-related injury. If workers are rewarded for achieving low rates of reported injuries, co-worker peer pressure may discourage reporting. OSHA (after nearly 50 years of silence) is now anti-incentives.

Do you have post-injury drug testing? OSHA cautions that blanket post-injury drug testing policies may deter proper injury reporting. Thus, it now commands an “appropriate balance” – which seems to be less than probable cause but not by too much:

drug testing policies should limit post-incident testing to situations in which employee drug use is likely to have contributed to the incident, and for which the drug test can accurately identify impairment caused by drug use…Employers need not specifically suspect drug use before testing, but there should be a reasonable possibility that drug use by the reporting employee was a contributing factor to the reported injury or illness in order for an employer to require drug testing.

OSHA’s rules are being challenged in court: Texo ABC/AGC Inc. et al. v. Perez et al., Case No. 3:16-cv-01998, in the U.S. District Court for the Northern District of Texas.  The new rules were originally scheduled to begin on August 10, 2016 but implementation has again been delayed until December 1, 2016, pending additional briefing in the Texo case on a motion seeking to enjoin implementation of these rules.

Action Items to Implement:

  • Establish a policy/procedure for employees to promptly and accurately report injuries and illness (if you email me, I will send you my sample);
  • Distribute the reporting procedure with a notice that employees have the right to report work-related injuries and illnesses and will not be retaliated against for exercising that right;
  • Revise any “immediate” injury reporting policies and corresponding “failure to report” disciplinary procedures;
  • Review (and potentially eliminate) employee incentive programs based on injury rates or “injury free” periods; and
  • Revise any automatic post-injury drug testing policies.


  1. Starting January 1, 2017, OSHA’s injury and illness data reports will need to be submitted electronically, unless an employer had ten or fewer employees during the previous calendar year or is categorized as a low-hazard industry.
  2. Compliance with theses electronic reporting requirements will be phased in:
  • Establishments with 250 or more employees must submit information from their 2016 Form 300A by July 1, 2017; all 2017 forms (300A, 300, and 301) by July 1, 2018; and all subsequent years on March 2.
  • High-risk establishments with 20-249 employees are required to submit their 2016 Form 300A by July 1, 2017; their 2017 Form 300A by July 1, 2018; and all subsequent years by March 2.
  • All other establishments with 249 or fewer employees are exempt.
Posted in Employment Policies

#SocialActivism in the Workplace

Hashtags are ubiquitous. The 10 most influential hashtags on Twitter are:

10. #GivingTuesday

9. #YesAllWomen

8. #PrayforJapan

7. #BringBackOurGirls

6. #IceBucketChallenge

5. #Sandy

4. #IndyRef

3. #BlackLivesMatter

2. #LoveWins

1. #Ferguson

(Washington Post, “These 10 Twitter hashtags changed the way we talk about social issues,” March 21, 2016)

Fan, athletes, entertainers, political candidates, and just plain folks are “hashtagging” on social media. So too employees whose social media posts are often accessible to coworkers.  #tensionalert ?  #OMGcallHR?  #PCPolice?

Employee A may see something that Employee B posted on Instagram over the weekend, and be offended to the point where it impacts Employee A’s and B’s work relationship. Or, a customer could see what your employees post and question whether such views reflect the company as a whole.  #uhoh

Muzzles won’t work but clear guidance might.

But, any policies will be effective only if legal.

First, employers must be aware of Section 7 of the National Labor Relations Act (NLRA), which expressly allows employees’ communications about wages, hours and other terms or conditions of employment, in and out of the workplace. See Hispanics United of Buffalo, Inc. and Carlos Ortiz. Case No. 03–CA–027872 (Dec. 27, 2012) (termination of 5 employees held illegal because their comments posted on Facebook are protected in the same manner and to the same extent as comments made at the “water cooler.”); Kaiser Engineers, 213 NLRB 752 (1974), affirmed in Kaiser Engineers v. N.L.R.B., 538 F.2d 1379 (9th Cir. 1976) (employee terminated for writing to legislators was a violation of Section 7: “the reason for the letter was a fear on the part of the Society [of Engineers of which the employee was a part] and its members that relaxing immigration laws to permit increased importation of alien engineers might affect the job security of the members of the Society and their fellow engineers….”).

Second, while private employers may otherwise limit political discussions in the workplace, the same is not true for communications outside the workplace. Multiple states prohibit discrimination or retaliation against employees for engaging in lawful, off-duty conduct including engaging in particular political or social activities or having certain political affiliations – see prior blog post here.

Third, employers must be consistent in applying their policies and practices related to social activism affecting employees in and out of the workplace. This, however, is more difficult than it sounds.  What exactly are employers expected to do when confronting potentially offensive but lawful speech or other conduct?

  • What if one employee (African-American) adds #blacklivesmatter to her email signature and complains that her co-workers (white) are harassing her by adding #alllivesmatter to theirs?

Here, subject to your policies and past practices, it is okay to ask both employees to remove the hashtags from their email signatures.

  • Would the solution be different if this call-and-response occurred on social media?

Yes – requesting employees to remove social or political commentary from their work email signature blocks is not the same as requesting employees to remove such commentary from their private social media pages.

When a complaint by an employee is premised on another employee’s social media posts, companies should follow the same harassment investigation protocols as would be followed for such statements made in other contexts. Here, the NLRB may be right: the water cooler conversations of the 20th century are the social media conversations of the 21st century.

Even if the outcome of the investigation does not reveal harassment or discrimination, this may be a “teachable moment” to remind employees that: (1) they are free to defriend or unsubscribe if they disagree with or do not want to see certain social media posts; (2) their personal opinions may be viewed by coworkers; (3) it should be clear that their personal opinions are just that – their personal opinions (rather than the Company’s opinion); and (4) any social media posts should not occur during working hours.

  • What if a discussion between coworkers on the Presidential election raises Trump’s ban on Muslims and your Muslim employees are offended?

Like any other religious discrimination or harassment claim, you should conduct a thorough, prompt and fair investigation. See e.g., Makhayesh v. Great Lakes Steel, No. 91-108394-CZ (Mich. Ct. App. Apr. 10, 1995) (per curiam) (unpublished opinion) (court reversed a grant of summary judgment for the employer, and held that the evidence was sufficient to let the harassment claims by Muslim employee to go to trial based in part on direct, personal insults, but also in part on coworkers comments suggesting that the US “nuke Iraq and Syria” and “go back [to Libya] and wipe them off the face of the earth.”)

  • What happens if this discussion occurs in a group discussion on social media?

Same song; different verse. You will still investigate as with any other report of harassment.  Context may dictate whether this is either severe or persuasive; context may also dictate whether this is employment-related and what the possible “prompt remedial action” should be.

  • Can you fire an employee for offensive remarks?

Maybe. Context matters.   A purely political statement (e.g., “Make America Great Again”) isn’t racial harassment; thus terminating for that is terminating for supporting a political candidate and thus often a violation of state law. A more obviously harassing statement (e.g., “When Mexico sends its people, they’re not sending their best….They’re sending people that have lots of problems, and they’re bringing those problems with us. They’re bringing drugs. They’re bringing crime. They’re rapists.”) does not grant immunity from Title VII liability because it is a direct quote from a Presidential candidate.   Harassment cases are all difficult to investigate and address; social media merely complicates the already difficult.

  • Is it easier or harder to fire if it is a manager making these communications?

Absolutely easier. Managers never take off their supervisory hats; their conduct and statements follow their presence into work like a shadow; your organization will likely be held legally accountable for their biases; and those positions are outside the reach of the NLRA.

  • What if one of your customers finds an employee’s social media post offensive and inquires as to whether it reflects the Company’s position, or worse, threatens to stop doing business with you?

Advise the customer that our employees’ personal social media posts and opinions are not reflective of the Company’s position whatsoever. Remind the employee that his/her posts on social media may not be on behalf of the Company.

Posted in Employment Litigation Employment Policies

Wellness Program Wars

This should be easy.  Like motherhood and apple pie, everybody should be in favor of encouraging more wellness.  But, in 21st century America, nothing is ever easy; mothers baking apple pies beware.

There are two fronts in the wellness program wars. The first has been playing in court for several years.  The second arises from the Equal Employment Opportunity Commission’s (“EEOC”) new rules on wellness programs issued on May 17, 2016, under the Americans with Disabilities Act (“ADA”) and the Genetic Information Nondiscrimination Act (“GINA”).

Let’s begin with a brief overview.  In general, there are two types of wellness programs.  Health-contingent programs require employees to meet a specific health outcome such as reaching a target cholesterol level, weight, or blood pressure.  Participatory programs simply support healthy lifestyles with incentives such as reimbursement for gym memberships (and, as a result, duck under many of the ADA/GINA potential problems).

A.  The Litigation Front

The EEOC began challenging health-contingent wellness programs in 2014.

  • In a lawsuit against Orion Energy Systems, the EEOC claimed Orion’s program violated the ADA because it required employees to complete a health-risk questionnaire and screening. EEOC v. Orion Energy Systems, Inc., No. 1:14CV01019 (E.D. Wis. filed Aug. 20, 2014). Orion has argued that its wellness program does not violate the ADA because it is protected by a “safe harbor” provision that shields such programs from liability if they are connected to a health insurance plan. That case is still pending.
  • The EEOC also sued Flambeau, Inc. after the company discontinued an employee’s health insurance when he refused to take a health risk assessment or a biometric test as part of Flambeau’s wellness program. The district court ruled in Flambeau’s favor, holding that the company’s wellness program fell under the ADA’s safe harbor. The EEOC appealed. EEOC v. Flambeau, Inc., 131 F. Supp. 3d 849, 856 (W.D. Wis. 2015), appeal docketed, No. 16-1402 (7th Cir. Feb. 25, 2016).
  • In another action, the EEOC sued Honeywell International. EEOC v. Honeywell Int’l, Inc., No. 14-4517 ADM/TNL, 2014 U.S. Dist. LEXIS 157945, at *14 (D. Minn. Nov. 6, 2014). There, it requested a temporary restraining order to enjoin Honeywell’s wellness program, which required employees to complete biometric screenings and refrain from tobacco use. After the district court denied a preliminary injunction, there was a voluntary dismissal.

A core issue in these lawsuits has been the ADA’s safe-harbor provision, which exempts employers from the restrictions of the ADA if their wellness plan is associated with a voluntary insurance program. The EEOC’s new regulations take the position that this safe harbor is subject to its regulations and has declared that its new regulations (effective in January 2017) will eliminate that safe-harbor. 29 C.F.R. § 1630.14 (d)(6). This far exceeds the traditional use of administrative power to interpret statutory law via regulation; it is questionable whether courts will acquiesce in the EEOC’s novel claim of a power to amend statutes via regulation.

B.  The Regulation Front

Under the new EEOC regulations, there are five key compliance concepts:

  1. Wellness Programs Must Promote Health Or Prevent Disease. Wellness programs must be “reasonably designed to promote health or prevent disease.” 29 C.F.R. § 1630.14 (d)(1). Employers cannot simply collect health-related data without providing advice, counseling, or follow-up information to employers. For example, it’s a non-starter for companies to merely use health-related data to estimate future healthcare costs.
  2. Wellness Programs Must Be Voluntary. Employees cannot be forced to participate in a wellness program or be penalized for abstaining from one. Intimidating or threatening employees to join a wellness program violates this “voluntary” mandate. 29 C.F.R. § 1630.14 (d)(2).
  3. Wellness Programs Must Comply with the EEOC’s Limitations on Incentives. The general rule is that if employees must be enrolled in a specific health plan in order to participate in the wellness program, companies may offer financial incentives up to 30 percent of the total cost of self-only healthcare coverage. 29 C.F.R. § 1630.14 (d)(3). There are, however, a number of situation specific variants of that ceiling.
  4. Notice Rules Must Be Honored. If a wellness program asks medical information or includes any disability-related inquiries, companies must provide written notice to the employees describing what medical information will be collected, the purpose of collecting the information, how such data will be used, who will receive it and how the company will prevent unauthorized disclosure of sensitive data. 29 C.F.R. § 1630.14 (d)(2)(iv). The EEOC has published a sample notice for company-sponsored wellness programs to help employers comply with the ADA.
  5. Medical Information Must Be Kept Confidential. Employers must ensure compliance with the requirements under the Health Insurance Portability and Accountability Act (“HIPAA”). 29 C.F.R. § 1630.14 (d)(2)(iv) (C). More to the point, managers deciding the future of any given employee should be firewalled from access to their medical information.

C.  The Practical Front

Employers still considering wellness plans may want to hold off until the litigation dust clears. Employers with existing plans need to gear up to meet the additional requirements outlined in the EEOC regulations (which become effective January 1 of 2017).  But, let’s go beyond both fronts to consider some practical advice.

Like everything else in employment, the duty to reasonably accommodate employees applies equally to wellness plans. For example, accommodations should be made for a hemophiliac if a wellness program requires a biometric screen involving a blood draw.  Additionally, employers may need to provide educational materials in different formats—like large print, braille, or offer sign language—to allow individuals with visual and hearing impairments to participate in the program.

Wellness programs, despite complying with every line in the EEOC regulations, are not immune from disparate impact claims under Title VII and the ADEA. Remember that certain conditions (such as obesity, diabetes and hypertension) may disproportionately affect certain protected groups, but that ought not be a problem: i.e., properly structured wellness plans do not create the requisite adverse employment action.

So, weigh [pun intended] the potential costs as well as the potential benefits in considering, adopting, and managing wellness plans.

Posted in Employment Policies International Employment Law Union Organizing

The Globalization of Labor Disputes

My colleagues saw a line item in the advance sheets and said “this must be wrong, Joe; some reporter has obviously misunderstood.”  The report was simple: a local labor dispute at the El Super grocery stores in several southern California locations is now an international legal issue.  Worse, it was totally true.

El Super, a small chain of 50 supermarkets had a routine labor dispute with Local 770 of the United Food & Commercial Workers (UFCW). Despite twenty-plus bargaining sessions,  the parties failed to reach agreement, and the union resorted to boycotts and a strike.

But this time, the dispute did not take its normal course under the NLRA. El Super found itself embroiled in an international incident.  How could this happen in a small town in Los Angeles County?  Let’s segment that process because it is certain to recur.

First, the UFCW filed a complaint with the U.S. Department of Labor against El Super’s Mexican parent under the “labor side-agreement” to NAFTA. This complaint alleged that the parent’s use of so-called “protection contracts,” which are a lawful part of Mexican labor law, violated employees’ rights to freedom of association.

Second, the unions filed a complaint with the U.S. State Department under OECD Guidelines for Multinational Enterprises. This alleged that El Super engaged in an “aggressive, multi-year campaign of coercion” against workers and of interfering with workers’ rights to freedom of association by threatening,  interrogating, spying on, disciplining and discharging employees because of union activities.

Veterans of U.S. labor relations will see that those might be routine allegations to be litigated at the National Labor Relations Board (which, for all its flaws, looks more advantageous than the alternatives El Super now faced). With these NAFTA and OECD complaints, this local labor dispute had become an international PR nightmare and political football.

This moved from the bargaining table to global PR talking points; similarities to legal strategies for any other labor dispute in the history of Los Angeles County disappeared. Former UFCW President Ricardo Icaza cried out that “an international solution is necessary to this international problem.”

In July, the U.S. Department of Labor (DOL) found that the unions failed to establish that the Mexican government was responsible for allowing the alleged labor law violations but simultaneously expressed “its serious concerns regarding issues raised in the submission.” For its part, the State Department concluded its investigation on the OECD complaint by noting that the allegations were “both material and substantiated.”

Put simply, two separate Cabinet departments publicly condemned this grocery store under international law – and without a trial – due to a local labor dispute at one store in California. There was no sanction other than being pilloried: El Super is now the Hester Prynne of American labor law burdened with the scarlet letter of adverse publicity.

This is emblematic of a growing trend. Businesses increasingly are finding themselves subjected to a huge supra-national labor regulatory regime.  The 2011 publication of the UN Guiding Principles on Business and Human Rights (the Ruggie Principles) has accelerated the process.  By the way, these Principles alone span 127 pages, 35 pages of guidelines and 92 pages of interpretive guidance.

Internationalist views are also infiltrating U.S. labor law enforcement. For example, the International Labor Organization (ILO) considers permanent strike replacements an interference with the right to strike.  Despite the fact that this has long been permitted by the Supreme Court,  the NLRB inched closer to the ILO’s position, limiting the right of an employer to hire replacements if it acted for an “independent unlawful purpose” (a standard purposely ill-defined).

American industrial relations has crossed the Rubicon.  Every labor dispute in the smallest town (Santa Fe Springs, California, where this all began has a population of less than 17,000) is now subject to the same battle cry as at El Super: “an international solution is necessary to this international problem.”

Navigating these “internationalizations” (which is my personal passion) is more than can be fit within this blog post, but let me leave you with three thoughts based on too many nights addressing such attempted “internationalizations” of labor disputes:

  1. Understand that the aspirational statements of today will become the obligations of tomorrow.  A regulatory system is developing, one created primarily through treaty obligations, loan documents, and global union agreements. Many obligations arise from company’s own statements of good corporate citizenship.
  2. Choose words carefully.  What may be commonly understood locally may have different meaning globally. For example, U.S. companies frequently adopt Corporate Social Responsibility or Human Rights policies subscribing to “Freedom of Association.” Yet, according to the ILO, that would require relinquishing the right to hire permanent replacements.
  3. Filter the noise.  It is in the interests of many activists, particularly unions, to magnify the issues, obligations, and problems in pursuit of an unrelated agenda, one which may not always be obvious.  Pay attention to the man behind the curtain.
Posted in International Employment Law

Global RIFs: A Checklist Approach

Global RIFs require careful planning and implementation.

What can be achieved in a day (or a couple of months if WARN applies) in the US can take months (and yes, sometimes years), once taken global. What in the US can  be implemented at no cost or with separation payments that can be enshrined in releases is often far more expensive due to statutory obligation internationally.

But, global RIFs are manageable if carefully planned.  Here is a checklist to guide that planning.








Posted in Employment Policies International Employment Law

A Movie Review And A Legal Critique: Two Days, One Night

Today’s authors are summer college interns from DLA’s Chicago office. 

Two Days, One Night is an award winning film set in Belgium that revolves around an employment dilemma. Here’s the premise:

Sandra is scheduled to return from sick leave on Monday but discovers on the preceding Friday that she is being terminated from her position with a solar panel manufacturer in Belgium. The reason? The boss decided that 16 workers could do the work of 17 so he gave the rest of the employees the option of either taking 1,000 Euro bonuses, or keeping Sandra on the payroll.

With the aid of her friend who chairs the works council at this company, the boss agrees to rerun the vote on Monday. Sandra has only the weekend – 60 hours = two days and one night — to track down her 16 coworkers and persuade them to forfeit a bonus so she can keep her position: a job that Sandra needs not only for the family economy but also for personal stability.

Can employers actually do such a thing?

We interviewed DLA employment attorneys around the world to find out.

Johnathan Exten-Wright, who practices in the United Kingdom, believes legality here depends on the answer to the following question: “is the job redundant or is Sandra targeted for ill health?” If Sandra’s position is redundant, the employer may prove how and why she should be terminated. If Sandra is targeted for her mental health, however, she will likely prevail in a discrimination suit.

Repeatedly, attorneys cautioned that redundancy statutes in their countries place the burden on employers to show that the termination is the best economic option. For example, Hélène Bogaard, who practices in the Netherlands, noted that her country has stringent redundancy statutes in place to protect the employees, like Sandra.

When approaching termination, redundancy laws from Germany to Hong Kong require that the decision meet a standard of “reasonableness.” According to Julia Gorham of DLA’s Hong Kong office, leaving a redundancy decision to a vote, as Sandra’s employer does, would foreclose meeting the standard of reasonableness and render the termination illegal.

While most countries use redundancy statutes to ensure fair treatment of employees, Japan believes that redundancy statutes are… well… redundant. Lawrence Carter, who practices there, referred to Japan as an “employee’s paradise”; Sandra would have been 100% safe in keeping her job if only her film was set in Japan.

Countries without redundancy laws evaluate motives.  Washington, D.C. attorney Joseph Turzi noted that there is nothing unlawful in the U.S. about 16 employees deciding whom to fire but that this delegation makes it difficult to prove that the motive wasn’t to punish Sandra for taking leave (which would violate the Family Medical Leave Act).  “Without a rational explanation,” Turzi cautioned, “a jury will find an illegal one.”

In the United Kingdom, employers are better safe than sorry.  According to Kate Hodgkiss in Edinburgh, “the safest way here is procedural.”  A fair process involves either eliminating a unique job position or using objective criteria (i.e., documented performance).  Kate adds that often employers there utilize settlement payments to sidestep that process — a common practice in the U.S. as well.

Although Two Days, One Night’s employment problem faced legal setbacks elsewhere around the world, what about in Belgium, since the film takes place there?  Even there, it is compelling drama but totally unreal. Soetkin Lateur, counsel with DLA Piper’s Brussels Office, presented no fewer than three different ways in which the film’s scenario was contrary to Belgian law:

  1. firing someone straight off of sick leave suggests illegal discrimination;
  2. incentivizing her co-workers to dump Sandra could constitute an abuse of employer’s prerogatives; and
  3. failing to give Sandra twelve weeks of notice before termination is a separate problem.

Sandra’s employer should have called Soetkin.  Two Days, One Night’s producers should have too but that would have killed the drama in their project.  There is little drama in watching veteran lawyers guide their clients around complicated employment laws.  Yet, for employers with businesses that span the globe who want to run those businesses smoothly – without drama – the stars each should cast is clear:

Soetkin Lateur in Brussels

Kate Hodgkiss in Edinburgh

Joe Turzi in D.C.

Julia Gorham in Hong Kong

Lawrence Carter in Tokyo

Hélène Bogaard in Amsterdam

Jonathan Exten-Wright in London

Each gets:

Posted in Employment Litigation Employment Policies

Kvetching Toward Living With EEO-1 Compensation Data Demands

Nobody remembers I.F. “Izzy” Stone (1907-1989) but everybody should; he was a reporter who did deep-dive readings of the handouts, the press releases, and the public documents.  Izzy would love the EEOC as a target.  While the EEOC did not include its proposed EEO-1 form in its updated Final Comment Request, you can find it (just as Izzy would have found it and devoured it).

Reading the EEOC’s conclusion that the cost of including pay data is only $416.58 per employer suggests that it is necessary to read the form itself (and very carefully).  The requested additional data is merely 1,512 cells to be filled in twice: once with numbers of employees and once with hours.  That is for one establishment; if an employer has 10 establishments, that is 30,000+ cells to calculate, populate, double-check, and then certify that “These reports are accurate and were prepared in accordance with the instructions.”  All for $416.58?

Swamped by the numbers?  Let’s go back slowly.  There are 12 salary bands on which the EEOC wants data; it demands that data separately for each of the 9 EEO-1 job categories (professionals, technicians, craft workers, etc.) and for each of the 14 traditional race/sex categories.  So, 12 x 9 x 14 = 1,512 for the number of employees and the same for the aggregate hours.  Izzy (were he still alive) would note the irony of the EEOC complaining about “the complexity” of its “burden” in explaining how this is consistent with the Paperwork Reduction Act.

But, wait, it gets better.  The EEOC states that its current EEO-4 report (for state and local government employers) requires compensation data – albeit with not quite so many cells.  It then  points out that for those EEO-4 forms “on average approximately 7% of the cells on the reporting form are actually used by an employer to report data” and, thus, it anticipates that “[t]he overwhelming majority of the cells [will be] left blank.”  Izzy would ask “why bother at all then?”

If you are curious why the EEOC is bothering, its updated explanation of how it will use this data is set out at pp. 41-46 of this Final Comment Request.  That, however, is a long-term focus.  Inquiring readers today prefer the short-term focus: i.e., what has changed from the EEOC’s initial proposal to its revised proposal?

Let’s turn to what is changed.  Precious little:

  • compensation reporting is now W-2 only: no employer options;
  • EEO-1s with compensation data will not be due until March 31, 2018;
  • the employer choice of when to take the “snapshot” of its workforce has now narrowed to the 4th quarter only; and
  • hours worked are FLSA hours for nonexempts and for FLSA exempts either a default of 40 (which will be used almost always) or actual hours if available.

Beyond promising no burden, the EEOC’s “Final Comment Request” also does a deep dive into confidentiality and data security to reassure the world that what is reported will not be spilled. From those same wonderful folks who promised that all of this reporting can be done at a cost of only $416.58, this is truly reassuring.  Regrettably, Izzy would not be so reassured: “Every government is run by liars and nothing they say should be believed.”

Izzy, however, did not promise a world free from such governments.  Prudent employers can merely begin planning early (which is far more practical than cursing).  Let’s stake out what employers need to look at to be ready for the initial EEO-1 with compensation data.

First, HR information systems (with the demographics) will need to sync with payroll systems.  Otherwise, the matching of demographic information with hours and with W-2 wages will be overwhelming.  Let’s prove Izzy wrong here in writing that “[t]he only thing God didn’t do to Job was give him a computer.”

Second, if the computers are synced, then do a test run with 2016 year-end data.  Izzy too believed that practice improves performance: “You have to take the long view…. it’s like pissing on a boulder.  For the first few thousand years, you don’t see any effect.  But after that, you start to see a definite impact.”

Finally, study (but only in a framework that is subject to attorney client privilege) how the EEOC will use the data to decide what measures may be taken (but be careful of reverse discrimination) and what explanations will bear up under scrutiny.  Izzy offers the following guidance on  explanations: “I sought … the overlooked fact, the buried observation which illuminated the realities of the situation.”

PS: The fate of regulatory reforms that do not take effect before a change in Presidential administrations — so-called “midnight regulations” — is another subject altogether.  While “midnight regulations” know no party boundaries, loyalists of the party not in the White House always aspire to relief from such regulations.  There is even a pending bill in Congress entitled the Midnight Regulation Relief Act.  Fantasy fictions of “what if …” , however, are beyond the scope of this blog.

Posted in Employment Litigation Employment Policies

Space, Time, and Taxes: How The Theory Of Special Relativity Applies To Settling An Employment Claim

taxSpecial thanks to Taylor Carico for contributing to this post.

Tax implications of employment settlements bedevil everyone. Even Albert Einstein famously stated that “the hardest thing in the world to understand is the income tax.”

There are lots of reasons for confusion but the complication between what is taxable income and what is taxable wages may be the right place to start. If you win the lottery, it is taxable income but it is reported on a 1099 rather than a W-2 because it is not wages.  Simple in theory but complicated in practice.

Charting it out may help.

Knowing these basics is significant.

First, it permits cheaper settlements.  If settlement proceeds are gross income but non-wages, a plaintiff receives the time-value of money and an employer profits by reducing its unemployment and other payroll tax payments.  Put concretely, every dollar shifted from a W-2 report to a 1099 report will save an employer more than 10% of that dollar in payroll taxes (as well as increase the satisfaction of the payee for more cash in hand).

Second, it avoids tax penalties. Mishandling reporting triggers penalties.  If an employer fails to file the required 1099 or W-2 and/or reports incorrect amounts, it is subject to penalties of $250 for each return.  If an employer willfully and intentionally disregards such requirements, it may be liable for a penalty equal to 10% of the settlement amount (but that high standard is satisfied where the employer acts “voluntarily in withholding required information, rather than accidentally or unconsciously.” Purser Truck Sales, Inc. v. United States, 710 F. Supp. 2d 1334, 1339 (M.D. Ga. 2008)).

Finally, it facilitates bullet-proof settlements.  Knowing the tax consequences allows allocating the settlement and spelling out that allocation in the agreement itself.  Because both the employer and employee have joint liability on the taxes due,  allocating the nature of the claims and their corresponding dollar figure within the settlement agreement serves both.   Further, the IRS will usually defer to an arms-length, good faith allocation among the various categories of potential damages; conversely, a failure to allocate will cause the IRS to treat the entire settlement as taxable wages. See, e.g., Bagley v. Comm’r, 105 T.C. 396, 406 (1995), aff’d 121 F.3d 393 (8th Cir. 1997); Morabito, Fedinand A., TC Memo 1997-315 (July 9, 1997).

Let’s look at an example.

Al Einstein is a theoretical physics and mathematics professor at the California Institute of Technology (Caltech). His annual salary is $200,000.  Everyone agrees that Al is one of the most promising academics in the field.  This past year, Al made three business trips to New York, London, and Munich presenting on novel issues in the field.  Al submitted his expenses for reimbursement promptly after each trip.  Caltech still owes Al $10,000 for those business expenses.  Recently, Al published the groundbreaking theory of relativity overturning Sir Ike Newton’s law of universal gravitation.  However, as Provost of Caltech, Ike was quite embarrassed that someone on his own faculty undermined his life’s work.  As an assertion of authority, Ike demoted Al to associate professor and decreased his salary by $50,000.  Further escalating the issue, Ike made some off-hand remarks about Al being a communist at the Caltech Board Meeting.

Al was furious. Due to related stress and anxiety, Al suffered a mild heart attack.  The hospital bill was $100,000.  Embracing the American way, Al threatened to file a lawsuit against Ike and Caltech for slander, breach of contract, emotional distress, and unlawful discrimination.  Rather than risk trial, Caltech decided to pay Al $1 million to settle the claim a year later.

During negotiations, Al, Ike, and Caltech set out to properly allocate the settlement proceeds. Let’s look at the break down:

  • Back pay – Here, Al’s base annual salary before the demotion was $200,000. The decreased salary was $150,000. Thus, the amount allocated to back pay is $50,000. This payment is classified as taxable wages subject to deductions and reported on Al’s W-2.
  • Front pay – Al had plenty of universities offering him higher paying positions after leaving Caltech. Accordingly, there is no allocation for front pay. If there had been such an allocation, it is handled just like back pay.
  • Medical expenses and emotional distress – The hospital bill (beyond insurance) for the heart attack was $100,000. This amount is not taxable income. In addition, the parties allocated another $200,000 for emotional distress related to case of Al’s heart attack. Again, there is no withholding requirement for this payment because it is not taxable income: this is the exceptional case; but for the physical illness/injury, ordinary emotional distress is taxable income subject to a 1099 form.
  • Expense reimbursement – The $10,000 owed to Al for his business trip expenses is not considered taxable income because it was incurred according to an accountable plan: i.e., a plan, policy, or practice covering expense reimbursements (1) paid or incurred while the employee is performing services as an employee and (2) adequately accounted to the employer within a reasonable time.
  • Interest – The parties designated part of the settlement proceeds as interest accrued over the year. Accordingly, this portion is paid without payroll deductions and reported as income only on a 1099 form.
  • Attorney fees – $400,000 has been allocated to attorneys’ fees and will be paid directly to Al’s counsel. Nonetheless, this is reported on 1099 forms to both Al and his attorney; Al may then claim this expense on his tax return to lower his tax burden on the rest of his taxable settlement.
  • Punitive damages – The parties designated the remaining $240,000 (minus interest) as punitive damages, which (like interest) is paid without payroll deductions and reported as income only on a 1099 form.

As you can see, tax aspects of an employment settlement can be tricky, even for Einstein. Before finalizing an employment settlement, make sure you consider the tax implications of the payments.  Both the employer and employee will be happy that you did.  And who knows, you might even find that the formula holds true: in Employee settlements = Money Counts.

Posted in Employment Policies

An Apple a Day Will Not Keep Paid Leave Away

Take two aspirin before reading further because apples won’t help. Keeping up with the ever-expanding paid leave laws is enough to give any employer a headache. Let’s start with those currently effective – 4 states, Puerto Rico, Washington D.C., and 22 other cities or counties:

Take two more aspirin and look ahead.

• The U.S. Department of Labor (“DOL”) is currently working on regulations mandating paid family and medical leave policies for all government contractors; those regulations are expected later this year.

• New York is set to phase-in the nation’s broadest paid leave policy starting in 2018. There, employees will be eligible for 8-12 weeks (as the plan is phased-in) of partially paid family leave (50%-67% of average weekly wages).

• Other states and localities have legislation in the pipeline.  For example, Plainfield, New Jersey and Los Angeles, California passed paid sick time laws which go into effect July 2016.  In Maryland, the Montgomery County Council passed a paid sick time law which will go into effect on October 1, 2016 while San Diego’s expanded paid sick time law was approved on June 7, 2016.  Effective January 1, 2017, employers with employees in Santa Monica, Spokane, and Vermont will need to comply with the corresponding paid sick leave ordinances. San Francisco is adding paid parental leave,which will also be phased-in (according to number of employees) starting January 1, 2017. Chicago, Illinois has also enacted paid sick time which will go into effect July 2017.

For employers fortunate enough to be outside the realm of government contracting and with business operations confined to a single city (or at least a single state), the aspirin alert passes quickly. For those employers with a national scope, there is a dilemma: a single policy based on the most generous current law or a headache inducing manual with upwards of 25 (for today with that number increasing month by month) separate policies for each local facility.

Let’s consider what such a single policy approach might look like:

1. Front-load the maximum number of hours of sick time accruable into employees’ accounts on January 1.

a. This eliminates accrual method and carryover calculation discrepancies across jurisdictions.
b. Leave should be available for immediate use by current employees.

2. Front-loading 72 hours (9 workdays) of paid sick time generally complies with the highest required amount of paid leave. [NB: 96 hour requirements for the hotel industry due to certain city laws imposing more on those employers].

3. This policy must apply to full-time, part-time, and temporary employees. New hires are eligible to use paid sick leave on the 90th day of employment or upon 680 hours worked, whichever occurs first. This, however, works only for businesses that are not in either Puerto Rico (which requires only a 2 month waiting period before sick leave may be used) or Long Beach and SeaTac (which each allow employees to use paid sick leave as accrued).

4. Leave should apply to caring for a child, a parent, a spouse, a domestic partner, or any other individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship who has a serious injury/illness or is otherwise in need of care; victims of: domestic violence, sexual assault, or stalking, or to relieve family pressure while a family member is called to active military service.

5. Payout of unused sick leave at years’ end (before front-loading the required amount of leave on January 1 for the next year) is required.

6. Accrued sick time can be used in the smaller of hourly increments or the smallest increment the employer’s payroll system uses to account for other absences or use of time.

7. Accrued but unused sick time is lost upon termination but must be reinstated for immediate use by an employee who is rehired within 1 year after separation.

Are you saying “where is that industrial-strength aspirin?” A single policy is no panacea. Indeed, implementing such a uniform policy, based on the most generous amount of sick time required, may also be cost prohibitive — providing 72 hours of paid sick leave up-front for even part-time and temporary employees upon their first day is too expensive a price for administrative convenience.

With the illusion shattered and with balancing too many local laws inducing migraines, you can write to your Senators and members of Congress. This explosion of local laws concerning paid leave perhaps begs for a federal solution: a single law that pre-empts all state and local laws. Interestingly, the U.S. is the only developed country without national legislation mandating paid leave.